The CPA Journal

Storage Fees Included in N.Y. Property Factor

By Rose Litvack, CPA, Kingsborough Community College (CUNY)

The amount of a corporation’s entire net income allocable to New York State is determined by multiplying the corporation’s business income by its business allocation percentage. The business allocation percentage is computed by comparing a corporation’s property, receipts, and payroll values within New York State to those of the corporation as a whole. Real property rented by a corporation is included in the property factor. However, amounts paid for storage are included in the property factor only when they are for designated space and under the corporation’s control.

In a recent case (In the Matter of the Petitions of American Jet Engine Co., Inc. and Amjet Aerospace, Inc., DTA Nos. 816998 and 816999), the petitioners were able to prove that the storage fees paid for space in a New Jersey warehouse were properly included in the property factor. The taxpayers are brother-sister corporations, with offices in New York City and owned 100% by Paul Varkell. The companies buy and sell airplane parts, which are stored in a warehouse in New Jersey. The petitioners argued that Varkell exercised the dominating influence or authority over the storage space. Varkell gave credible and detailed testimony about the storage space, designed the language for a portion of the contract dealing with special handling of the inventory, dictated how to store the inventory, and mandated the existence of and provided part of the funding for the steel racks. He also trained an employee of the storage company to be responsible for cataloging and maintaining the inventory and packaging and shipping parts. Varkell paid additional fees for these services.

The administrative law judge concluded that the storage space is designated space by virtue of the storage racks to hold the petitioner’s inventory. In addition, because of the quality and dominance of Varkell’s authority over the storage space, such space was determined to be under petitioner’s control. Therefore, the rent paid for the storage space was properly included in the property factor. The case was determined by an administrative law judge, which does not set precedent.

State and Local Editor:
Stewart Buxbaum, CPA
S. Buxbaum & Company P.C.

Interstate Editor:
Nicholas Nesi, CPA
BDO Seidman LLP

Contributing Editors:
Henry Goldwasser, CPA
M.R. Weiser & Co. LLP

Steven M. Kaplan, CPA
Kahn, Hoffman, Nonenmacher & Hochman, LLP

Warren Weinstock, CPA
Marks Paneth & Shron, LLP

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STATE AND LOCAL TAXATION